Bitcoin has been going through an impactful period over the last couple of months, with gains mounting in the aftermath of the ETF approval of January 10th. All indicators show that the market is entering a time of consistent growth and that the rally is still only at the beginning. With the halving set for the final days of April, investors anticipate growth, unlike anything the BTC blockchain has ever seen before. And although there are many indicators showing that the market performs well, there are also some who are worried about some of the figures, and who believe that remaining cautious is still crucial. Exchanges such as Binance have always emphasized the importance of a good trading strategy.
Extreme greed
The well-known volatility of the cryptocurrency market is due to the environment’s decentralized nature, which means that both internal and external factors can influence the price. Apart from the macroeconomic factors, the appeal of tech innovation and political situations, one of the most critical aspects is investor sentiment. The Fear and Greed Index is one of the best-known ways to measure it. Excessive fear indicates that users are afraid to buy. As a result, prices deflate and the market goes on a downswing trend. The main reason for this scenario is that investors are worried imminent losses are set to arrive in the Bitcoin space.
At the other end of the spectrum is excessive greed, which gets prices considerably higher, contributing to upwards volatility. The current 2024 market is under pressure from extreme greed, hence why the prices are skyrocketing to previously unseen levels even ahead of the next halving. During times like this, investors must consolidate their portfolios and buy coins in order to increase their holdings. In the aftermath of the rally, the prices will likely become too high for a majority of investors who will switch to strict hodling in order to see gains.
Selling
There are some analysts, though, who believe that selling during this time of extreme greed would be the most profitable choice an investor could make. According to this belief, it is much more advantageous to do so rather than buy and hold on to coins for an indefinite amount of time. A March 21st analysis showed that the cryptocurrency ROI is substantially higher when relying on the Fear & Greed Index compared to DCA, the dollar-cost averaging. However, some wondered if testing this strategy shouldn’t happen across several other timeframes in order to get more comprehensive results on whether it works or not.
But others believe using this strategy can offer a break from the standard DCA-based plans, and that it can be successfully used in the current bull run. Many investors find it challenging to adopt a winning strategy during times of heightened volatility, as it is often impossible to anticipate the market’s next movements.
Liquidity crisis
The arrival of the Bitcoin-based ETFs has been widely anticipated by investors from all over the world. It has been over a decade since the first application was launched for these products, and after numerous delays and postponements, the SEC finally allowed the exchange-traded funds to reach the market. Analysts believe this to be a positive thing due to the fact that it will attract further interest from investors, particularly institutional ones. Since they will bring considerable amounts of capital to the trading environment, their involvement in the market is naturally seen as a positive thing. So far, the ETFs have lived up to their hype, causing prices to climb up much higher than ever before, breaking their own all-time high record of 2021.
But the ETFs are also eating up the available BTC supply, leaving investors with little left to purchase. And this is only the beginning when the assets begin to gain momentum. If the trend continues unchecked, there might be a time when there isn’t enough Bitcoin available to meet demands. The bears will also continue to be affected until the inflows stop completely or at least slow down a little bit. In a single week, exchange-traded funds laid claim to over 30,000 BTC, leading some investors to wonder about the possibility of a supply-induced price shock.
Wallets
The fact that such a crisis could occur is not a surprise, given the wildly changeable landscape of cryptocurrencies at the moment. In the event of sell-side liquidity, the next cyclical top could exceed expectations as a result of a relatively diminished orderbook. There’s also an upward trend in accumulation addresses, which refer to digital wallets that operate solely with inbound transactions.
Generally, miner wallets and those belonging to exchanges are excluded from the figures. All addresses that were not active over the past seven years are not included either, as the funds are considered to be potentially lost and cut off from regular coin circulation for good. But as the new Bitcoin price target of $100,000 started to be fueled, this tendency decreased and the accumulation phase ended. This phase began back in December 2022, as the market was dealing with one of the most difficult bear markets ever that brought values down by 70%.
The fact that Bitcoin succeeded in reaching new all-time highs seems to have resulted in a considerable sell-off. But that doesn’t mean that long-term Bitcoin holders have stopped raking in profits. The current phenomenon is a far cry from being bearish. Similar accumulation trends took place in 2018 and remain deeply established in the market.
Price outlook
Price predictions are the backbone of the crypto environment, and most investors offer their predictions regarding the pace and direction they believe the market will take. At the end of 2023, most considered the $100,000 level to be perfectly achievable, but only in 2025. Given the latest developments and market growth, some have started to believe that achieving this level could come much sooner. The launch of the Bitcoin spot exchange-traded funds helped the values move much faster. The upcoming halving is expected to continue building on that trend, so investors could see the $100K level achieved by the end of 2024.
The Bitcoin marketplace is set for growth and development throughout the year, and investors must remain attentive to their strategies. Although the fear of missing out can be a powerful motivator, it can also lead you to make rash decisions that ultimately lead to losses instead of gains.
